Medical devices: Regulators probe marketing incentives at ANS

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Federal officials, after years of aggressively pursuing drug companies for questionable promotional tactics, are expanding their focus to the medical-device industry.

Sales of medical devices are a fraction of those for prescription drugs, but the use of such devices to treat pain, Parkinson's disease and epilepsy has been expanding. Since many devices are covered by Medicare, regulators want to rein in marketing efforts that provide improper incentives to physicians to use particular devices.

U.S. regulators are looking into past promotional practices at Advanced Neuromodulation Systems Inc., which several years ago offered doctors $1,000 if they implanted a pain-management device in certain patients for a five-day trial, according to a person familiar with the situation. Although the scope of the investigation couldn't be determined, ANS, of Plano, Texas, disclosed in its quarterly earnings report last week that it had been subpoenaed by the inspector general of the Department of Health and Human Services regarding its promotional practices.

Other device companies have reached settlements with regulators. In 2003, a division of Abbott Laboratories settled a criminal case and civil charges for about $600 million involving marketing of its feeding pumps for patients in hospitals. In August, the Netherlands' Orthofix International NV, which has U.S. operations in North Carolina, agreed to pay $1.7 million, without admitting wrongdoing, to settle federal allegations that it wrongly billed government health-care programs for off-label uses of an electromagnetic-pulse product meant to stimulate bone growth.

ANS was trying to break into the booming market for medical devices in 2001 when it made its offer to doctors. The devices made by ANS, as well as other companies, are implanted along the spine and use electrical pulses to block pain transmission. People who suffer chronic pain brought on by conditions such as back injuries and cancer, and who fail to get relief from surgery or pharmaceuticals, are candidates for the device. Some long-suffering patients get results immediately after the spine stimulator is put in, allowing them to go back to work.

Documents recently reviewed by The Wall Street Journal, labeled "ANS Sales Bulletin," outline how doctors would be encouraged to implant the ANS device in patients who had failed to get better on a competing device made by Medtronic Inc. (Usually patients try the spinal stimulator for five days, and if it alleviates their pain, the device is permanently implanted, in a short surgical procedure.) The documents referred to the initiative as the "Renew ReTrial Program" and said it was an "initiative" intended "to collect data to compare the efficacy" of the competing devices.

The doctors were to collect information about the patient's condition and response to the ANS device and report back to the company. They would be paid only if they implanted the device in at least five patients. The documents said doctors would be compensated for providing "data collection and management of the trial process" on a one-page form, according to a review of the documents and the person familiar with the matter.

Physicians, or more commonly the universities or hospitals they work for, do get paid for conducting large-scale clinical trials that can involve hundreds or thousands or patients and take months or years to complete. A question that investigators have studied in prior cases has been whether payments to individual doctors constituted compensation for clinical trials, or inducements to use a medical device or drug.

ANS Chief Executive Chris Chavez declined to discuss the marketing program, the documents reviewed by this newspaper or anything about the subpoena. Ken Hawari, the general counsel for ANS, said, "We have been advised not to say anything further."

The HHS inspector general's office doesn't confirm or comment on ongoing investigations, as a matter of policy, a government spokesman said.

In interviews, two pain-management doctors recalled the ANS program and the size of the payments that were offered. Rob Joseph, of the Pain Clinic of Northwest Florida, said he heard about the program from colleagues at a medical meeting but didn't participate. Standiford Helm, of the Pacific Coast Pain Management Center, said he was asked to participate in the program by an ANS sales representative and chose not to. "Whether I decide to put in a device or not is a factor of what the patient needs," Dr. Helm said.

In 2001, ANS had just entered the market with its first neurostimulator and was taking on Minneapolis-based Medtronic, which held nearly the entire market. Since then, ANS, which has a stock-market capitalization of about $600 million, has captured 20 percent of the market. The company's stock price has tripled over five years. ANS reported 2004 revenue of $121 million, up 33 percent from the previous year. Its sales consist almost entirely of the spinal-stimulator devices and software for them.

"The neurostimulation market is in its infancy," said Jan Wald, an analyst from A.G. Edwards & Sons Inc. Medtronic, ANS and a new entrant, Boston Scientific Corp., are jockeying for a share of the market, which is forecast to reach $1 billion this year, and in the future could reach several billion dollars in sales, according to ANS and analysts.

Medical companies have been searching for ways to promote their products to doctors now that freebies like lavish dinners and concert tickets are no longer tolerated by regulators. The inspector general in 2003 published guidelines to advise companies on how to market their drugs and devices without violating federal fraud laws.

Canadian drug maker Biovail Corp. was subpoenaed by the U.S. HHS inspector general in 2003 over its marketing program that offered doctors as much as $1,000 for prescribing the heart medicine Cardizem LA. Among other things, doctors completed a "Final Evaluation Questionnaire" and a "Patient Tracking Log" to receive the full payment.

A Biovail official said the company stands by its marketing program. The inspector general's office wouldn't comment on the status of the Biovail probe.